Putin's Kremlin Flexes Its Muscles With Gazprom

There's nothing like getting back that old feeling of power and influence.

It perhaps took just the flick of a few switches yesterday by engineers at Russia's natural gas behemoth, Gazprom, for it to cut off its supplies to Ukraine. The move, which came after Ukraine balked at a massive price increase by Gazprom, has sent a shiver through Europe, triggering fears of an energy shortage in several countries.

Now, according to media reports, Russia has accused its neighbor of siphoning off $25 million of gas destined for Europe from pipelines that cross Ukraine. The latter disagrees, saying it was planning to take its share if temperatures got too cold, but that simply hasn't happened yet. Ukraine's president, Viktor Yushchenko, is hoping for another chance to parley with his Russian counterpart. "I will call on (President) Vladimir Putin... for Gazprom to return to the negotiating table," he was quoted as saying in an AFX report.

Putin reportedly set the terms for a new Ukraine contract--three months of gas at last year's prices, then an increase to market rates. Ukraine had been paying about $50 per thousand cubic meters of gas; Russia was looking for $230 before the talks broke down Sunday. While the increase seems a jolt on a cold winter's day, there are some who agree with the Kremlin's actions. "These countries should pay today's market prices for their energy to improve the efficiency of their economies," Pascal Lamy, director general of the World Trade Organization, was quoted by AFX as saying of former Soviet satellite states.

It's not yet clear how Ukraine's dispute with Russia, a country that has just taken its first chairmanship of the G8 group of industrialized nations, will affect other countries. According to AFX, Austria, Hungary, Slovakia, Poland and Romania have reported falls of as much as 40% in their imports. But Britain's Centrica, which last year warned that its consumers would face higher prices in 2006, now expects little fallout because it is only a minor Gazprom customer.